The tailwinds of last week’s South African Rand (ZAR) surge kept the Euro to South African Rand (EUR/ZAR) exchange rate tumbling when markets opened this week. Markets continued to find risky emerging market currencies appealing due to Eurozone-China trade talks.

After opening last week at the level of 15.86, EUR/ZAR spent most of last week testing lows before plummeting on Thursday and touching a monthly low of 15.42.

EUR/ZAR ended the week at the level of 15.55 and trended near last week’s lowest levels again at the time of writing on Monday.

The South African Rand has continued to climb thanks to mixed US Dollar (USD) trade, as well as hopes that the Eurozone and China could develop closer trade relations boosting demand for emerging market currencies.

Euro (EUR) Exchange Rates Sold as Eurozone Trade Surplus Slides

Monday saw the publication of the Eurozone’s May trade balance results, which unexpectedly showed the Eurozone trade surplus slipping from €16.7b to €16.5b rather than the forecast €20.9b.

This was due to an unexpectedly high import print, and lower than forecast exports.

However, analysts noted that the Eurozone’s trade surplus with the US actually rose, indicating that the Eurozone was still seeing strong exports to the US despite uncertainties and concerns about US trade tariffs.

While a stronger surplus with the US was Euro positive, investors became more concerned about the importance of Euro-US trade and how it could be negatively impacted by US trade protectionism.

Investors have been eagerly buying the South African Rand since last week, following a strong rebound from its lowest levels supported by domestic data and fresh demand for emerging market currencies.

Last week, despite news of escalating trade war action between the US and China, investors looked to buy some emerging market currencies like the South African Rand back from their cheapest levels.

On top of this, the South African Rand found fresh domestic support on Thursday when South Africa’s latest production data came in well above forecasts.

The emerging market rally continued on Monday, as investors reacted to the weekend news from the EU-China summit. Comments from officials boosted hopes that trade ties between the EU and China could improve despite the US-China trade war.

According to European Commission President Jean-Claude Juncker:

‘Europe wants to do more and to invest more in China on the basis of a level playing field and of agreed rules. But an open investment environment works best when it is two-way,’

Could the South African Rand rally continue? The Euro to South African Rand (EUR/ZAR) exchange rate may have further to fall if trade developments support the emerging market rally, or if South African data impresses.

Tuesday will see the publication of South Africa’s Q2 consumer confidence results, but Wednesday’s session will be far more influential.

June Consumer Price Index (CPI) inflation data from both South Africa and the Eurozone will be published on Wednesday morning, with South African retail sales stats due in the afternoon.

If the South African data beats forecasts, the Rand could see stronger demand and keep EUR/ZAR low.

However, strong Eurozone inflation figures could ignite speculation about the possibility of a more hawkish European Central Bank (ECB) and this would help EUR/ZAR to gain.

Of course, any notable US-China trade developments may have a strong influence on the direction of the Euro to South African Rand (EUR/ZAR) exchange rate too.